Weekly US$ rates and comments - week commencing 30th November 2009

Some ups and downs for sterling last week. We had a slight revision upwards of the growth figures for the UK economy in the third quarter. But instead of growth we were still seeing the UK economy contract. The belief is that we will see the economy grow in the current quarter and the Bank of England has forecast growth of 2.2% in 2010 and 4.1% in 2011. But as highlighted by the Chairman of the BoE this is off a low base and the current recovery was not particularly strong and is subject to some profound challenges ongoing. And it has to be remembered that the BoE will at some point in time have to raise UK interest rates and have to sell the bonds that it has bought as part of its quantitative easing programme back to the market. But given the current problems this will not be for quite a while. This week we have the release of Novembers purchasing indices for both manufacturing and services and the expectation is for an increase.

 

The US$ sits at US$1.651/£1 inter bank. Sometimes people don't realise how quickly exchange rates can move and how far they can move in a short period of time. Last week the US$ gave a very good demonstration of what can happen. The US$/£ exchange rate ended the week very close to where it started the week. But at the start of the week on the back of positive market sentiment the US$ weakened and reached US$1.67/£1 inter bank. Then we had the problems in Dubai and their six month moratorium on the huge debts they owe and risk aversion came to the fore. In the space of a day we saw the US$ strengthen to US$1.63/£1. A 2.5% movement in 24 hours. And then by the end of the week it had pulled back to its starting level. We still live in volatile times where anything can happen and often does. This week we have the release of Novembers purchasing indices for both manufacturing and services and the expectation is for an increase. We also have the release of US employment figures. There is a drop in initial jobless claims in the US and the expectation is that we will see a small increase in unemployment.